On Thursday, the U.S. Department of Commerce reported the fastest quarterly growth on record after businesses reopened following pandemic shutdowns and consumers proved resilient.
Real gross domestic product (GDP) increased at an annual rate of 33.1 percent in the third quarter of 2020, as efforts continued to reopen businesses and resume activities that were postponed or restricted due to COVID-19. In the second quarter of 2020, real GDP decreased 31.4 percent.
Less than one week before Election Day, the U.S. Labor Department also released new jobless claims data Thursday morning, showing another decrease in the weekly number of jobless claims. Last week’s jobless claims were reported at 751,000, a decrease of 40,000 from the previous week.
The pace of growth has moderated significantly since early in the recovery. Overall economic activity will likely remain below its pre-pandemic level for some time, even though some sectors such as retail sales and housing have made comebacks.
The report comes out five days before Election Day. While it’s unclear how much it will help President Donald Trump, especially since more than 69 million Americans have already voted, there’s a good chance Trump will highlight the GDP number as evidence of the president’s economic stewardship.
Bloomberg Economics estimates the outsize rebound will still leave the U.S. economy’s size almost 4% below its pre-crisis peak. Michael Gapen, chief U.S. economist at Barclays Plc, doesn’t expect a full recovery in the level of GDP until the first quarter of 2022.
Before the crisis, the economy was usually growing by a few tenths of a percentage point each quarter, resulting in an annualized pace typically ranging from 2% to 3%.
A resurgence in consumer spending is driving the increase. Personal consumption is estimated to jump an annualized 38.9% after plummeting 33.2% in the prior period. Consumer spending accounts for about two-thirds of GDP and is typically driven by spending on services — like health care, travel and dining out.
Other categories are also poised to support growth, including a booming housing market and a rebound in business investment. Meanwhile, a wider trade deficit will weigh on the headline figure. Government spending may be a wild card, with economists' estimates varying.
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